Health Care Reform Bill Viewed As High Risk Legislation
The fractious 60-vote Senate majority of Democrats and Independents is rushing to pass a comprehensive healthcare overhaul bill that the House can then approve and send to the president.
Important details remain to be established, as does the final analysis by the Congressional Budget Office. But the basics of the Democrats’ plan remain intact.
It has long since become obvious that their healthcare overhaul will increase costs almost everywhere.
The Democrats’ solution is to take some good features of some private healthcare plans and impose them across the board. Unfortunately, the evidence shows this approach will fail.
A good way to understand how this all should work is to begin with guaranteed issue— that is, the requirement that all insurance plans take on everyone who applies regardless of pre-existing medical conditions. That is a recipe for high premiums. The fix is community rating: everyone is charged the same rate.
But many healthier enrollees would drop out, and premiums would spiral upward with no natural stopping point. If reform stopped there, insurance would cost more instead of less, and the ranks of uninsured would go up instead of down.
So the next fix is mandates. Individuals will have to buy insurance they don’t want, or employers will have to provide insurance (subsidized by tax laws) that many of their employees do not want to pay for. Those who balk will pay a penalty on their next tax return. If too many healthier consumers pay fines instead of premiums, upward pressure on premiums will increase because higher-risk consumers will be left in the insurance pool. But let’s assume the White House is right in saying this won’t happen.
Still, regulation could not stop there. If consumers could buy cheap, bare-bones insurance, the mandate would be gutted. Hence another fix. A new federal commission will set minimum insurance benefits. Most states already do that, and the result is usually a long list of benefits, whether consumers want to pay for them or not. Federal standards will probably be high, too, as evidenced by the quick addition of breast cancer screening over age 40 to the Senate bill. Mandated benefits, of course, increase insurance premiums.
So far, we have guaranteed issue, community rating, individual and employer mandates with fines for non-compliance, and minimum insurance standards—with each measure designed to fix the harm caused by its predecessor. Much of the good in the current system—such as low-cost, high-deductible plans—would be wiped out by one or another of these regulations. But the point here is that costs and premiums would be pushed upward into the region of unaffordability or, alas, political unpopularity.
So the legislators plunged on. The next step is hundreds of billions of dollars of subsidies, not just for the poor but for much of the middle class. The Congressional Budget Office analysis of the Senate bill predicts that most consumers who buy insurance on their own will get bargain rates, thanks to taxpayer subsidies.
So the first thing we know about the Democrats’ healthcare reform bill is that it is built on a chain of regulations, mandates, penalties, minimum federal standards, and subsidies.
The second thing we know is that costs will run out of control. Does anyone recall that the president said reform would cut the average insurance premium by $2,500 and that it would not add “one dime” to the deficit? The $2,500 benchmark is long gone. What about not “one dime”? The Congressional Budget Office says not to worry; the Senate bill will actually cut the deficit over the next decade. That is most unlikely. CBO spending estimates are lowballed because Congress kept tweaking the language until the CBO models finally generated acceptable predictions. That is a recipe for unrealistic optimism. Worse, the CBO is forced by Congress to assume that cost-cutting provisions will work even when everyone knows they will be revoked. That applies, for example, to hundreds of billions of dollars of Medicare cuts in physician reimbursement. In the meantime, all those insurance mandates and regulations will push costs up in the private sector, too. But the CBO pays little attention to non-government spending.
To their credit, an alarmed group of congressional and administration leaders has finally publicly acknowledged that the healthcare overhaul will drive costs up instead of down. Cost control has finally captured center stage in the healthcare reform debate.
And now we have learned a third thing about healthcare reform: Congress plans to solve the cost problem with smoke and mirrors. Of course, there will be an ineffective independent cost-cutting commission. The Senate bill creates one for Medicare, but, amazingly, doctors and hospitals are largely excluded until at least 2019. Some in the Senate want that commission to provide cost-cutting recommendations for private healthcare, too. That would do little good. No expert group of federal appointees will do a better job of figuring out what to pay for than competing insurance firms would in collaboration with employers, consumers, and providers.
The real action lies elsewhere. The healthcare bills would use Medicare incentives and demonstration projects to push a laundry list of ways to improve healthcare efficiency and quality while saving costs. Traditional fee-for-service, in which providers simply make more money when they order more services, could be replaced by “bundled” or “episode-based” reimbursement, in which providers are paid a fixed fee for a specific diagnosis. Groups of physicians could band together to create “accountable care organizations” that may assume responsibility for all of a patient’s care in return for an annual fee. That has been the model for the Group Health Cooperative of Puget Sound since its birth in 1947. Better yet, all services ranging from primary care to high-tech surgery can be combined into a single organization staffed by salaried physicians, who would have incentives to balance costs and benefits when deciding what services to order. That is the Kaiser Permanente model, with variants having been implemented by Cleveland Clinic, Mayo Clinic, Intermountain Healthcare, and Geisinger Health System.
There is much more. So-called “pay-for-performance” measures would do things like refuse payment to hospitals for unnecessary readmissions, while paying extra for exceptional quality. Quality ratings and report cards could guide patients and payers to the best doctors and hospitals. Electronic records could be implemented throughout the healthcare system, preventing errors, improving quality, and cutting costs. Comparative effectiveness research will compare treatments to tell us which should be used and which dropped, and, with a bit more effort, which ones are not worth the cost.
As politician Al Smith used to say, let’s look at the record. Practically all these tools were developed in the private sector, and they have been studied extensively. Kaiser Permanente and similar systems certainly do good work in their home areas, but they have never made much progress when they venture into very different regions. Accountable care organizations remain largely an untested ideal. If bundled reimbursement is so much better than fee-for-service, why does fee-for-service persist in Germany, France, and Switzerland, which are extolled as models to emulate here?
Report cards and ratings have been run through several tests, and they fail more often than they succeed. Electronic records work wonders except when they actually increase costs and magnify mistakes. The hospital errors that would trigger penalties turn out to be vanishingly few in number. Federal agencies have mounted massive comparative effectiveness trials with scarcely any impact on actual medical practice.
Why does Congress expect these reforms to save hundreds of billions dollars? The error lies in thinking that if something works in one context after years of painstaking trial and error, it can easily be disseminated through central leadership, demonstration projects, clever financial incentives, and the like. Experience clearly shows otherwise. Removing barriers like the ban on cross-border insurance sales would be far more effective in fostering spontaneous new improvements in healthcare delivery.
Congress’s futile attempt to use predominantly untested measures to curtail the very spending juggernaut it will create shows why healthcare overhaul is shaping up as the highest-risk legislation in modern times. It is high time to back up and start over.
John E. Calfee is a resident scholar at the American Enterprise Institute.
Topics: accountability, affordable health care, American Diabetes Association, Americans, annual limits, CBO, comptetition, Congressional Budget Office, deficit, deficit-reduction effort, expanding coverage, health care, Health Insurance Reform, healthcare overhaul bill, Insurance Companies, insurance reform, insurers, pre-existing conditions, quality health care, Senate Health Reform Bill, Small Business Majority, U.S., unfair rate hikes, United States, White House
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